Tag Archives: CAG

23 Apr

Fixed Fee is the Fix

On April 17, the Supreme Court upheld the government’s plea that Comptroller and Auditor General of India (CAG) was within its rights to audit the accounts of private telecom companies.

The problem with the judgment is not that Supreme Court is mistaken, but that the ruling deals with the symptom of a more serious problem viz. computing licence fees as a proportion of operator revenues. There is an obvious incentive to understate revenues and escape payments to the government.

This concerns the CAG. Telecom licence fees are a large contribution to the exchequer. And, as the Supreme Court has confirmed, CAG’s s mandate includes government receipts as well as expenditure.

However, CAG’s new task is huge and difficult. The telecom sector has revenues of roughly 22,000 crores (US$38billion) spread around 13 operators, in 23 circles involved. Further, spectrum charges are linked to the type and amount of spectrum held by the operator as well as the revenues generated.

CAG’s staff will face the same challenges that India’s tax inspectors do with income tax returns. Good ones will struggle to finish the tasks in time. Bad ones will help companies to escape payments. This is hardly an improvement; it’s more like business as usual.

It is not the Supreme Court or the CAG, but the Department of Telecom (DOT) that can solve the problem.

The way out is to delink fees from operator revenues. The answer is to set fixed fees. The amount could be a percentage of total sector revenues. DoT can set the percentage to enable government to protect its revenues.

How much would individual companies pay? A simple, logical and workable way to determine a company’s fee would be to divide the total amount of fees in proportion to the amount of spectrum held by it. So, a company which holds a quarter of spectrum allocated, would contribute quarter of the fees.

What if a company does not own spectrum? It would make sense to charge a prefixed nominal fee or to forgo it altogether, since all players without spectrum, even today pay a less than 5% part of the sector’s total fees.

A fixed fee will protect government’s interests without increasing the incentive for fudging. Indeed, it will encourage greater efficiency. Efficient companies will retain more of their revenues, inefficient users of spectrum as well as hoarders will pay more. That is good for the sector and for the overworked auditors.

Watch this space for details.

By Mahesh Uppal

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